Section Page 1 of 1 1 of 1 Date 11/01/12 02/01/ Introduction

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1 14 Clergy-Related Issues Subsection 14.0 Introduction 14.1 Issues Related to Priests Compensation Clergy Federal Tax Return Example 14.2 Priests Compensation 14.3 Priests Accountable Plans 14.4 Declaration of Housing Rental Allowance Regarding Permanent Deacons 14.5 Personal Vehicle Registrations 14.6 Mass Stipends and Stole Fees (i.e. Sacramental Offerings) 14.7 Seminarians and Transitional Deacons 14.8 Visiting Priests Compensation

2 14.0 Introduction This Section Page 1 of 1 1 of 1 Date 11/01/12 02/01/08 This section addresses two main topics related to compensation of the clergy: how they are compensated and how they are taxed by the Internal Revenue Service. The Internal Revenue Code has some unique provisions that relate to the clergy in general. Section 14.1 contains the document that was originally presented to priests in December 1996 and revised most recently in March It represents the official policy of the Archdiocese with respect to taxation of its priests.

3 14.1 Issues Related to Priests Compensation This Section Page 1 of 11 1 of 11 Date 11/01/12 05/01/09 Archdiocese of St. Louis Issues Related to Priests Compensation December 12, 1996 (revised 2/1/2002, 3/1/2009) Change in Policy Effective January 1, 1997, priests income will be reported annually to the Internal Revenue Service on Form W-2 instead of the Form 1099-MISC. It is the responsibility of the parish or agency on which each priest depends to report accordingly. This change in policy is made only after months of extensive research and thoughtful reflection by a special task force requested by the Priests Council. Father Dennis Stehly chaired this task force which consisted of the following individuals: Mr. Bernard Huger and Ms. Theresa Brennan (Archdiocesan legal counsel), Mr. Thomas Keeline (Tax Partner, Deloitte & Touche), Mr. Fred Hummel (Priests Mutual Benefit Society), and Mr. Gerard Hoeing (Archdiocesan Controller). A change in the legal environment precipitated this change in policy. History In September, 1989, the United States General Accounting Office provided the IRS with a list of 20 factors to be used in determining whether a person is, in its estimation, an independent contractor (i.e income) or an employee (i.e. W-2). The primary determining factor for priests is that generally all of their income is reported by one employer, usually a parish. In 1994 the U.S. Tax Court ruled that an ordained minister of the United Methodist Church was an employee for Federal income tax purposes. This was known as the Weber case and was subsequently upheld by the Appeals Court. Suffice it to say, there are many similarities between the tax status of Methodist ministers and Catholic priests. In 1995 the IRS developed specific guidelines for auditing the clergy, as part of a larger program designed to assist IRS agents in examining industry-specific groups of taxpayers. The Diocese of Galveston-Houston was threatened in 1995 with audits of all priests if it didn t agree to using the W-2 form of reporting. Recently we have been advised that several hundred clergy in Missouri (not all Catholic priests) will be selected for audits; we know of at least two priests in St. Louis already. This is not to say that the Archdiocese feels bullied into adopting this change in reporting. Rather, it was the unanimous recommendation of the task force to do so after a thorough examination of the pros and cons. Income Tax vs. Self-Employment Tax There are two separate types of taxes involved: income tax and self-employment tax. Income tax is legislated under the Internal Revenue Code; self-employment tax falls under the Social Security laws. Regardless of a priest s status for income taxes, he is considered self-employed for Social Security purposes. This means that a priest must pay both sides of this tax (15.3%); the employer s share of 7.65% and the employee s share of 7.65%. The W-2 issue has nothing to do with the self-employment status of priests for Social Security tax purposes! Additional Compensation The net effect of this change in reporting compensation for clergy is that most priests would be adversely affected by having less after-tax income for discretionary spending. In order to mitigate the impact, the Priests Council authorized our attorneys to conduct a confidential survey of priests to determine the amount of business deductions each had reported on his 1995 tax return. Based on a 70% response rate, we determined that the average and median amount of business deductions was about $5,000 per priest.

4 14.1 Issues Related to Priests Compensation This Section Page 2 of 11 2 of 11 Date 07/01/15 11/01/12 Using this as a benchmark, we determined that the fairest and most efficient method of offsetting the negative effect on after-tax income was to establish an accountable plan to reimburse priests for certain business-related expenses, subject to an annual limit of $2,200 for businessrelated expenses. This limit is separate and apart from the $1,000 limit currently established for the continuing education of priests. Election to Withhold Taxes There are some unique provisions in the tax code that apply to priests only, such as being granted a parsonage allowance that is exempt from income taxes and having the option to be exempt from tax withholding. Historically, priests have paid their tax liabilities through quarterly estimated tax payments. With the adoption of the W-2 form for reporting, each priest will now be eligible to elect withholding of both Federal and State taxes from his paycheck. Please note that this is an option. A priest will now be able to satisfy his tax liability in one of three ways: estimated tax payments only, withholding only, or a combination of the two. As employees, however, priests must now complete three employment forms, like other employees. Federal Form W-4: used to determine amount of withholding, if any. Missouri Form MO W-4: used to determine amount of withholding, if any. Federal Form I-9: used to verify employment eligibility for the U.S. Immigration and Naturalization Service. (NOTE: Payroll administrators must file those W-4 s, which declare exemption from withholding with the IRS. All MO W-4 s must be filed with the State of Missouri.) Reportable and Non-Reportable Income Reportable Income: Each year the Archdiocese notifies each priest of his compensation, which includes base pay and a seniority increment. This income is henceforth to be treated as reportable income on Form W-2. Non-Reportable Income: As mentioned earlier, the parsonage or housing allowance is not subject to income tax and is therefore not includable in W-2 income. However, it is subject to self-employment tax unless the priest is retired. PMBS premiums for health and retirement and expense reimbursements under an accountable plan do not get reported on the W-2 and are not subject to any taxes. Because stipends are an offering to the priest who will say the Mass, stipends received by parishes do not become assets of the parish, but rather are held by the parish for transfer to the priests. Accordingly, stipends paid by the parish to a priest are not to be reported as compensation by the parish and would not be reported on the Form W-2 or on a Form Each priest, with the advice of his tax preparer, should make a determination of whether to include stipends as income. It should be noted that the IRS has repeatedly taken the position that stipends are in fact taxable income.

5 Section Page 3 of 11 3 of 11 Date 07/01/15 11/01/ Issues Related to Priests Compensation Multiple Employers The $2,200 accountable plan limit should be paid to the priest by the employer or employers to which the priest submits his evidence of reimbursable expenses, provided that the expenses must have been incurred while employed by the employer to whom they are submitted for reimbursement. A priest may submit evidence of expenses to more than one employer but is only entitled to a total annual reimbursement of $2,200 for business related expenses per year no matter how many employers he may have. There should be communication among the priest and his employers regarding the amount of reimbursement paid by each employer. It is possible for a priest to be simultaneously an employee at one place (i.e. W-2) and an independent contractor at another (i.e. 1099). If the service is for an indefinite period of time, the priest would generally be treated as an employee. If the service is temporary or of an ad hoc nature, the priest would not be considered an employee. For example, a priest who says Mass every weekend at a particular parish would more than likely be considered an employee. A priest who says Mass during another priest s vacation would not be and would therefore not need a W-2. In this case, a 1099 would be required only if the total amount paid in any one year equals or exceeds $600. In any case, however, the income is still taxable. Accountable Plan The concept of an accountable plan is really quite simple. An employee can be reimbursed for qualifying business-related expenses provided that they are properly documented (i.e. receipts, dates, description of purpose, etc.) and submitted on a timely basis. Generally, the Archdiocese interprets timely basis to mean within 60 days of the end of the reporting period. We have attached a standard form for reporting these expenses. Each priest should submit a completed form with all pertinent receipts to his employer on a periodic basis, but no more frequently than monthly and no less frequently than once a year. The pastor or agency director should indicate his review and approval by signing the completed form. Qualifying business-related expenses for purposes of the accountable plan include only: automobile mileage reimbursement, parking fees and tolls, business travel expenses, business meals and entertainment expenses, costs of clerical clothing such as vestments, and dues, subscriptions, books, and equipment used for business purposes. The automobile mileage reimbursement rate is set at $.575 per mile for 2015 and is the highest rate allowed by the IRS. Each year the IRS publishes this rate. The Archdiocesan Finance Office will notify all parishes of this rate at the beginning of each calendar year. Do not submit receipts for gas, repairs, etc. because you will be reimbursed only for the miles driven for business purposes. Consult your tax adviser if you think it may be beneficial to deduct actual expenses on your individual tax return.

6 Section Page 4 of 11 4 of 11 Date 07/01/15 11/01/ Issues Related to Priests Compensation Itemized Deductions Some priests may elect to itemize their deductions on Schedule A of their tax returns instead of taking the standard deduction ($6,200 in 2014). Typically for a priest, these deductions include charitable contributions, state and local income taxes, personal property taxes, and a limited amount of miscellaneous deductions, which include unreimbursed business deductions, subject to certain limits. One limit is that miscellaneous deductions can only be deducted to the extent that they exceed 2% of adjusted gross income. Another limit known as the Deason Rule requires that unreimbursed business expenses can only be deducted in the proportion of his taxable income to his total income. This is explained in the sample tax return enclosed. Parsonage Allowance Even though the housing, or parsonage, allowance is exempt from income taxes, it must be included as income in the calculation of a priest s self-employment taxes. It is the responsibility of each priest to determine the fair value of this allowance. Each priest should attach a statement to his tax return, which clearly shows this allowance being included in the calculation of his self-employment taxes. An example of this statement is also included in our sample tax return. The Small Business Job Protection Act of 1996 clarified that housing allowances for retired clergy are not subject to self-employment tax since, by definition, that person is no longer employed. Unemployment Taxes As employees of a religious organization, priests wages are not subject to employer paid unemployment taxes. Deferred Compensation For many years, the Archdiocese had maintained a non-qualified deferred compensation arrangement for the benefit of priests who have been considered independent contractors. Under that plan, amounts could be deferred on a pre-tax basis and held in an interest bearing account with the Archdiocese. This plan is no longer available for the deferral of income of priest-employees but, since the 403(b) annuity program offers substantially the same benefit, the loss of this plan should not be significant. All amounts previously deferred will continue to be held in the Archdiocesan Fund for distribution as provided in the deferred compensation plan. 403(b) Annuities A priest who is employed by an entity which maintains a 403(b) program under which employees may elect to defer a portion of their wages for investment in individual annuity contracts will now be permitted to participate in that program. Contributions to a 403(b) annuity are not taxable when made, but are subject to self-employment tax, and the earnings on such annuities are not taxable during employment. When an employee achieves one of the distribution events, such as retirement or age 59 ½ and begins to receive distributions, he is subject to income tax but not self-employment tax. Priests should consult their employing entities to determine whether a 403(b) annuity program is available.

7 Section Page 5 of 11 5 of 11 Date 07/01/15 11/01/ Issues Related to Priests Compensation In any event, priests will not be eligible to receive matching contributions if the employer maintains a matching plan. Priests receive their retirement benefits through the Priests Mutual Benefit Society. PMBS A charitable trust is proposed to be established for PMBS. It will be primarily for the purpose of assisting the Archbishop in providing for the health, disability and retirement needs of the priests of the Archdiocese. In order to provide for the health and disability needs, plans specifying the benefits available will be adopted by the Archbishop and subscribed to by all entities, which employ priests. The plans will continue to be administered by the members of a committee appointed by the Archbishop. It is anticipated that the change to a more formalized structure will be seamless to the priests. That is, the priests will continue to submit claims and receive benefits as in the past. Copies of the plans will be distributed to all employers and all priests in the near future. The retirement benefits will continue as in the past to be paid after a priest stops providing active service within the Archdiocese on account of age. A plan describing the retirement benefits will also be drafted to reflect the existing commitment. Instructions to Payroll Administrators Separate instructions are being prepared for payroll administrators, including parish bookkeepers. Priests income must be reported on Form W-2 starting in January, 1998 for calendar year Your collaboration with payroll administrators and parish bookkeepers will go a long way toward making these administrative changes as easy as possible. 1. Why is the Archdiocese changing the reporting form from a 1099-MISC to a W-2? For income tax purposes, priests are considered to be employees (i.e. W-2) instead of independent contractors (i.e.1099) following the precedent established in what s known as the Weber case. The IRS developed in 1995 specific guidelines to assist their agents in the audits of clergy. Based on the recommendations of a task force, which was commissioned by the Priests Council and the Council s subsequent recommendation to the Archbishop, the Archbishop decided to approve this change in reporting. 2. Is this change voluntary or mandatory? This change is mandatory for all parishes and agencies, which employ priests. 3. What income must be reported on a priest s W-2? A priest s compensation consists of a base salary and a seniority increment. All of this is includable in W-2 income.

8 Section Page 6 of 11 6 of 11 Date 11/01/12 02/01/ Issues Related to Priests Compensation 4. Can a priest receive both a W-2 and 1099? It is possible for a priest to be an employee in one place and an independent contractor somewhere else. However, no one can receive both a W-2 and a 1099 from the same employer. If any person receives a W-2 from an employer, then all reportable compensation must be reported on the employee s W Are all priests required to file tax returns? Generally, yes. Religious order priests who have taken a vow of poverty are not required to file, but then their compensation is paid directly to their order. 6. Does this mean that priests no longer have to pay self-employment taxes? No. Priests are still subject to self-employment taxes even though they are considered employees for income tax purposes. The Internal Revenue Code governs the issues related to income taxes, but the Social Security laws govern issues related to selfemployment taxes. The IRS is the collection agent for both types of taxes. There are specific provisions in the Social Security legislation that provide that the clergy are treated as self-employed for Social Security purposes. This means that they must pay all of their selfemployment taxes without the benefit of tax free payment of one-half by their employer. However, this also results in Medicare being the primary payer for health benefits for priests who are Medicare eligible, but still working, if the health plan is one maintained solely for clergy. 7. Can a priest and his employer agree that the employer will pay one-half of the selfemployment tax rather than the priest paying both the employer and employee portions? Yes, legally this can be done, but this would result in additional taxable income to the priest because of his status under the Social Security law as self-employed. Additionally, such a change in compensation would first need the approval of the Archbishop. 8. What is the effect on a priest s after-tax income resulting from this change? Without other provisions that have been made with the change in the reporting form, most priests after-tax income would have been reduced because of the disallowance of most business deductions. However, the provision for an accountable plan is being made to offset this effect for most priests. 9. Should a priest continue paying estimated taxes or will taxes be withheld from the paycheck? Priests may elect to start having taxes withheld by properly completing Form W-4 with his employer. In fact, each priest must complete a W-4 since he is now considered to be an employee. He may elect to have no taxes withheld but if he chooses this option, the employer must notify the IRS that he is claiming exemption from withholding. Priests now have three options for satisfying their tax liabilities: estimated taxes only, withholding only, or a combination of both.

9 Section Page 7 of 11 7 of 11 Date 11/01/12 02/01/ Issues Related to Priests Compensation 10. Can self-employment taxes be withheld from a priest s paycheck? Self-employment taxes, which consist of both Social Security and Medicare taxes, can be withheld, but not under the designation of these two taxes. Rather, they can be withheld under the heading of Federal Income Taxes. The reason for this is that the IRS is the collection agent for both income and self-employment taxes. Even though the taxes are distinctly different and are identified separately on a priest s tax return, they are added together to determine a priest s total tax liability for the year. The total liability is then compared to total payments, which is the sum of both estimated tax payments and taxes withheld. The difference between the two results in either a refund to the priest or an additional amount due to the IRS. 11. What form does a priest use to have taxes withheld from his paycheck? Federal tax withholdings are determined by completing Federal Form W-4. Missouri tax withholdings are determined by completing Form MO W Are priests required to complete any other forms other than the W-4 s? Yes. Every employee is required by Federal law to complete an I-9, which verifies the person s eligibility for employment within the United States. This form is administered by the Immigration and Naturalization Service. 13. What form will be used to report PMBS retirement or infirm benefits? Form 1099R 14. Are stipends taxable? Since religious services within the Catholic Church cannot be purchased, a priest may argue that stipends are gifts and not payments for services. However, the IRS has repeatedly disagreed and taken the position that stipends are in fact taxable income. 15. Should stipends be included on a priest s W-2? Because stipends do not become the property of the employer but are held by the employer for transfer to the priests, they should not be included on the Form W-2 or on the Form As noted above, the IRS takes the position that stipends are taxable income and should be reported as such. Each priest should consult with his tax preparer regarding the inclusion of stipends in income. 16. What is an accountable plan? In its simplest form, it is an expense reimbursement plan that allows employers to reimburse employees for business-related expenses. In order for the reimbursements to be taxexempt, the expenses must be accounted for properly by documenting the purpose of the expenses and attaching receipts within a reasonable time period which we define as 60 days from the end of the reporting period.

10 Section Page 8 of 11 8 of 11 Date 07/01/15 11/01/ Issues Related to Priests Compensation 17. Do the employers such as the parishes have to submit any paperwork to secure the approval of the IRS for the accountable plan? No. It is the responsibility of the employer to administer the plan in accordance with the IRS regulations. 18. Are there any restrictions on the amount a priest can be reimbursed? Yes. Each priest can receive a maximum amount of $2,200 ($2,800 in outlying deaneries) in 2015 for qualifying business expenses, other than continuing education. There is already a separate accountable plan in place for continuing education of priests with a maximum annual limit of $1, How did the Archdiocese arrive at the original $1,750? Based on survey results, the average and median amount of business deductions claimed by priests was around $5,000. Using this as a benchmark, the task force commissioned by the Priests Council developed a model tax return for the average priest. The $1,750 was the original amount needed to keep such a priest in the same after-tax position, as he had been when he was claiming the $5,000 in business deductions. (The maximum has been increased over the years.) 20. What are qualifying business expenses? Qualifying business-related expenses are defined to include automobile mileage reimbursement, parking fees and tolls, business travel expenses, business meals and entertainment expenses, costs of clerical clothing such as blacks and vestments, and dues, subscriptions, books, and equipment used for business purposes. 21. What constitutes automobile mileage reimbursement? The Archdiocese has adopted the policy of reimbursing its priests at the standard mileage rate set annually by the IRS. In 2015, this rate is 57.5 cents per mile. This is the maximum rate per mile allowed without resulting in additional taxable income to the priests. 22. Can a priest be reimbursed for gasoline, oil changes, depreciation, etc.? Not directly. Since the Archdiocese assumes each priest uses his car for both business and personal reasons, the expenses associated with that car would need to be allocated. This would add to the administrative burden of the bookkeepers who are responsible for making the reimbursements. Therefore, it was determined that paying a standard mileage rate was a fair and reasonable solution.

11 Section Page 9 of 11 9 of 11 Date 11/01/12 02/01/ Issues Related to Priests Compensation 23. Does this mean that a priest can no longer deduct on his tax return actual costs associated with the business use of his car? Not at all. This is strictly a personal decision, but if a priest chooses to do so, he must subtract the amount of the mileage reimbursements from his actual business expenses. Each priest should consult his tax advisor for further guidance on this issue. 24. Can a priest be reimbursed for the deductible portion of an insurance claim? Not through the accountable plan. If for whatever reason the priest s employer chooses to cover this expense, it must be reported on the W-2 as income subject to taxes. 25. For a priest living in a rectory, when do business miles begin on any trip? From the rectory. 26. How will the priests be notified of any changes in the standard mileage rate? The Archdiocesan Finance Office will be responsible for providing an annual notice. 27. Can a priest still deduct on his tax return those business expenses that are not reimbursed through the accountable plan? Possibly, but with some restrictions. For expenses associated with the production of Schedule C income, see Question #32. Employee business expenses that are not reimbursed can be claimed on IRS Form 2106, which is aptly titled, Employee Business Expenses. The total of these expenses are subject to at least three limitations. First, a ratio of tax-exempt income to total income must be calculated. (Remember that the parsonage allowance is exempt from income taxes.) This ratio must then be multiplied by the total of unreimbursed expenses, the product of which is subtracted from unreimbursed expenses. Second, the remaining amount of expenses can be deducted only to the extent that it, and other miscellaneous itemized deductions, exceed 2% of adjusted gross income. Third, the total of all eligible itemized deductions must be greater than the standard deduction for most people that choose to itemize. Based on the survey results, many priests will not have enough remaining unreimbursed expenses to qualify for this deduction. 28. How much can a priest contribute to charity? Like anyone else, a priest can donate as much as he wants, but generally, he is limited to a charitable deduction equal to 50% of his adjusted gross income as reported on his tax return with any excess carried over to future years. Because there are several qualifications to this general rule, each priest should consult his tax adviser. 29. If a priest spends more than $1,000 for continuing education in any one year, can the excess be reimbursed under the other accountable plan? No. Each plan is separate and each plan s limits are designated for different qualifying expenses.

12 Section Page 10 of of 11 Date 11/01/12 02/01/ Issues Related to Priests Compensation 30. If a priest exceeds the accountable plan limit in any year, can the excess be submitted for reimbursement the following year? No. 31. If a priest doesn t use his entire allotment, can the excess be added to the following year s limit? No. 32. Will priests stop using Schedule C in their tax returns because of the accountable plan? Not necessarily. There may very well be other income that is not reportable on the W-2, such as stipends or honoraria that are not administered by the pastor. Some priests have other sources of outside income. These types of income and the associated business expenses incurred in the production of such income are still reported on Schedule C. 33. If the parsonage allowance is not subject to income tax, why is it subject to selfemployment tax? There is a specific provision in Federal law, which makes it so. 34. If a priest is drawing Social Security benefits and receiving compensation, a portion of his Social Security benefit may be subject to reduction. Is the parsonage allowance taken into account for purposes of this calculation? For this purpose, the Social Security statutes define earnings to be wages for services plus earnings from self-employment reduced by losses attributable to self-employment. Selfemployment income is defined to include the parsonage allowance and meals and lodging furnished for the convenience of the employer. Accordingly, the amount of the parsonage allowance is taken into account for the purpose of calculating the Social Security benefit to which a priest who is not fully retired is entitled. 35. How much should a priest claim for his parsonage allowance? This determination is the responsibility of each priest. 36. Will a priest be able to set funds aside for his own retirement? Yes. If an employer offers a tax deferred annuity program described in section 403(b) of the Internal Revenue Code, a priest may elect to defer a portion of his pay under the program. In addition, contributions may be made to an individual retirement account. 37. If a priest was a participant in the Deferred Compensation Plan for Priests of the Archdiocese of St. Louis, may he still contribute to that plan? No. Because the priest is now considered an employee and will be eligible to participate in the 403(b) program, the Deferred Compensation Plan will no longer be available.

13 Section Page 11 of of 11 Date 07/01/15 11/01/ Issues Related to Priests Compensation 38. What happens to the money of priests previously deferred to the Deferred Compensation Plan? It will continue to earn interest until distributed upon separation from service, attainment of age 70 ½, disability, death or a financial hardship. 39. Will the Archbishop maintain any plan to provide for the retirement of priests? Yes. The Archdiocese maintains a retirement plan for priests of the Archdiocese of St. Louis. This plan is funded through the Priests Mutual Benefit Society. 40. What other benefit plans does the Archbishop maintain for the benefit of priests? The Archbishop maintains a health care plan and a disability plan for priests. Each entity employing a priest is required to contribute to the Priests Mutual Benefit Society in order to provide a source of funds for the Archbishop to meet this obligation. 41. If a priest is entitled to Medicare, does Medicare pay health care benefits before the plan established by the Archbishop? Yes. All health care claims for priests who are entitled to Medicare on account of age or disability should be submitted first to Medicare. 42. How will the parish bookkeepers and other payroll administrators know what to do? A separate meeting was held at the Pastoral Center in the auditorium on Wednesday, December 18, 1996 at 9:00 a.m. for these individuals. The Archdiocesan Finance Office will instruct them how to implement these changes. 43. Whom can the priests call if they have questions? If the questions are related to policy, call the Parish Support Office ( ). For questions related to your specific tax situation, consult your tax advisor. How Income is Reported How Priest Reports on His Tax Return W Not Reported 1040 Schedule C Schedule SE Salary (inc. car allowance) x x x Seniority increment x x x Deanery supplement x x x Mass stipends: 1 Paid by parish Paid directly to priest Professional fees 2 x x x Pension benefits when paid 3 x x Fair rental value of housing x x PMBS premiums Accountable plan Expense reimbursements 1 Consult your tax advisor as to how to report on your tax return 2 Receive 1099 if $600 or more R issued by PMBS x x x x

14 Section Page 1 of 9 1 of 9 Date 11/01/12 11/01/ Clergy Federal Tax Return Example The following nine (9) pages represent a hypothetical tax return for an archdiocesan priest.

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23 Section Page 1 of 1 1 of 1 Date 11/01/14 11/01/ Priests Compensation During the spring of each year the Archdiocesan Finance Office mails a personalized letter to each diocesan priest informing him of his compensation for the following fiscal year. The salary portion of his compensation consists of a standard base for all priests that is subject to a cost of living increase each year plus a seniority increment of $10 per year for each full year of completed service. It is the responsibility of each priest to provide this information to the payroll administrator of his employing parish, school or agency. Each priest is eligible to receive reimbursements, up to specified limits that are set annually, for business-related expenses under the priests accountable plan, which must meet strict requirements defined by the Internal Revenue Service (IRS). There is a higher limit for priests assigned to parishes outside St. Louis City and County because of increased driving distances. The general accountable plan runs on a calendar year basis. Qualifying business-related expenses include automobile mileage reimbursement, parking fees and tolls, business travel, business meals and entertainment, clerical vestments, dues and subscriptions, books, tapes, CD s, DVD s and other equipment used for business purposes. Each year the Archdiocesan Finance Office publishes the IRS mileage rate which is the maximum reimbursement rate allowed by the Archdiocese of St. Louis. Priests may not be reimbursed for actual vehicle expenses such as gasoline, oil, repairs, etc. Each priest may also receive additional reimbursement for continuing education expenses. This plan runs on a fiscal year basis. Similar to the accountable plan mentioned above, documentation of such expenses is necessary for reimbursement. Each priest may receive monthly reimbursement for cell phone usage up to a maximum amount determined annually. The amount of the reimbursement may not exceed the actual cost to the priest. To receive reimbursement a priest must submit a copy of the monthly invoice. Nonbusiness applications and usage are not eligible for reimbursement. The Archdiocesan Finance Office provides a standard reimbursement form upon request. It is the responsibility of a priest s employing parish, school or agency to provide each priest a computer with the necessary hardware, software and internet access, subject to an initial maximum cost of $1,200. This is not an annual provision but is available upon a priest beginning a new assignment if a computer is not available for his use. Other benefits include employer-paid health and retirement benefits though the Priests Mutual Benefit Society.

24 Section Page 1 of 3 1,2 of4 Date 07/01/15 11/01/ Priests Accountable Plans Clergy Expense Reimbursements Continuing Education Benefits The Office of Continuing Formation of Priests established policies concerning this reimbursement. The allotment is designed to reimburse priests for costs incurred for continuing formation activities such as annual retreats, days of recollection, educational workshops, and support groups according to Archdiocesan guidelines and at the discretion of the individual priest. The maximum annual reimbursement amount is $1,000. This reimbursement is generally non-taxable and is available to a priest throughout the fiscal year that is July 1 through June 30. An employing parish, office, or agency can pay the expense directly to the individual or to the organization sponsoring the continuing formation activity. Also, a priest may submit receipts for health club memberships as part of the wellness program. However, in accordance with IRS regulations, reimbursement for health club memberships is taxable income and the amount will be added to a W-2. Accountable Plan This plan was established by the Archdiocese in 1997 to reimburse Archdiocesan priests (employed by parishes, offices, and agencies of the Archdiocese) for certain business expenses. The qualifying business expenses include automobile mileage reimbursement (for cents), parking fees and tolls, business travel expenses, business meals and entertainment expenses, costs of clerical clothing such as vestments, dues and subscriptions, books, tapes, cassettes, and equipment used for business purposes. Priests may not submit receipts for reimbursement for actual car expenses such as gas, oil, repairs, etc. The accountable plan is maintained on a calendar year basis because of the resulting effect on the priest s individual income tax return. The deadline for submitting properly completed requests for reimbursement is 60 days after the end of each calendar year. Receipts that exceed the Accountable Plan limit should be retained throughout the calendar year. A priest s tax practitioner may be able to deduct them on his federal income tax return on Form 2106 and Schedule A. The cash reimbursement limit for the standard Accountable Plan is $2,200 for For priests in the Festus, St. Charles, Ste. Genevieve, and Washington deaneries, the Accountable Plan limit is $2,800 for 2015 ($2,200 plus $50 per month). The reimbursement for business use of cell phones (e.g., iphone, Android) remains actual cost, up to $150 per month. In order to satisfy the IRS requirement for substantiating business use, a copy of the detailed invoice must be provided. All non-business charges (e.g., personal application downloads) need to be identified and subtracted from the amount of reimbursement. Automobile insurance is no longer being billed separately by the Office of Risk Management. As such, priests will no longer be reimbursed (or pay) for this expense. The parish/agency should also provide each priest with necessary hardware and software for a computer with Internet access. The initial cost should not exceed $1,200. This is not an annual provision, but available upon a priest beginning a new assignment if a computer is not already in place for his use. The value of this benefit is not transferable. Questions regarding these matters should be addressed to Darlene Doerr at DarleneDoerr@archstl.org. For tax advice, please contact a qualified tax practitioner.

25 14.3 Priests Accountable Plans This Section Page 2 of 3 3 of 4 Date 07/01/15 11/01/14 Archdiocese of St. Louis Business Expense Reimbursement Form Name Period Covered: From Though Chart of Account # Date Description/Purpose Automobile Other Continuing # of Parking Business Meals & Clerical Subscriptions Books Education Other Miles & Tolls Travel Entertainment Garb Expenses Total Mileage Standard Mileage Rate for 2015 x $.575 Total Signatures: Submitted by Approved by IRS regulations require attached receipts for all out-of-pocket expenses Cell phone costs are reimbursed in the amount of the attached invoice copy up to $150/month

26 Section Page 3 of 3 4 of 4 Date 07/01/15 11/01/14 Priests Accountable Plan Reimbursement Form In order for a priest s expense reimbursements to qualify as non-taxable income according to the Internal Revenue Service, the following guidance is provided. Automobile mileage reimbursements must be supported by a mileage log showing a destination and purpose and the number of miles. The total number of business miles is multiplied by the IRS approved standard mileage rate (57.5 cents per mile in 2015) to arrive at the automobile mileage reimbursement. A one-line summary of total business miles without detail does not meet the IRS documentation requirement. Parking Fees and Toll Road Fees should be documented by paid receipts. Other Business Travel, such as airfare, trains, bus and cab fare, should be documented by a paid receipt and a description as to the business purpose of the trip. Meals and Entertainment should be documented by a paid receipt with a listing on the receipt of individuals in attendance and the business purpose. This is separate from the cost of food purchased for the rectory which should be recorded in QuickBooks account # Supplies - Cost of food. Clerical garb should be documented by paid receipts for clerical clothing and vestments. Subscriptions (e.g., magazines, DVD/CD s) and Books used for business purposes should be documented by a paid receipt and a description of the business purpose of the expenditure. Continuing Education expenses should be documented by paid receipts for activities such as annual retreats, days of recollection, educational workshops and support groups. Cell Phone Reimbursements Each priest is entitled to a cell phone reimbursement for the lesser of the actual cell phone charges or $150 per month. A copy of the detailed invoice should be provided.

27 Section Page 1 of 1 1 of 1 Date 11/01/12 02/01/ Declaration of Housing Rental Allowance Regarding Permanent Deacons Declaration of Housing Rental Allowance Regarding Permanent Deacons Archdiocese of St. Louis Because there are no rectory facilities available to married permanent deacons in the Archdiocese of St. Louis, I hereby reaffirm and amend the policy of July 1, 1991, which was last amended effective January 1, 2001, and declare that, of the compensation paid to permanent deacons who are employed in full-time positions by the Archdiocese, its offices, agencies and parishes, the monthly housing rental allowance is increased from $450 to $500, effective July 1, This amount is to be paid as part of regular compensation and is not additional compensation. Approved by the Archbishop of St. Louis

28 14.5 Personal Vehicle Registrations This Section Page 1 of 1 1 of 1 Date 11/01/12 02/01/08 Our Risk Management Office continues to receive copies of personal vehicle titles that are registered in the name of a parish rather than the owner s name. Personal vehicles belonging to any individual, including priests, must be titled in the name of that individual. We need to protect the Archdiocese from additional liability. We also have no choice but to comply with Missouri State tax laws. Personal vehicles must be properly titled.

29 Section Page 1 of 1 1 of 1 Date 07/01/15 11/01/ Mass Stipends and Stole Fees (i.e. Sacramental Offerings) A Mass stipend is an offering attached to celebrating a Mass for a particular intention. Archdiocesan Statute #38 states Money for Mass Stipends must be kept in a distinct account from which the pastor will pay as the obligation is satisfied. While these are not parish funds, they are monies given to priests, and attached to celebrating Masses for particular intentions. The diocesan ordinary is obliged to oversee the proper use of the stipend accounts. Therefore, they are subject to the regular parish audit. See Section 5.8. On the other hand, Canon 581 states that stole fees are to be placed into the parish account. According to Canon 945, #1, the priest who celebrates or concelebrates the Eucharist has the right to receive a stipend for that celebration, whose amount is set either by a provincial council, a meeting of the bishops of the province, or local custom. In the Archdiocese of St. Louis, local custom goes back to the time of Archbishop May, who established the custom of allowing the priest to accept an offering of $10 for a wedding and $15 for a funeral which included cemetery visitation. These offerings can be taken from stole fees. Parishes receive sacramental offerings for funerals, baptisms and weddings. These offerings should be recorded in account , which should be titled Sacramental Offerings, as opposed to Stole Fees, in order to be canonically accurate. Payments to priests for special celebrations, excluding standard Mass offerings, are considered additional compensation. If the priest is on the parish payroll, payments for services are to be paid through payroll. If the sacrament is offered by a visiting priest, payment should be made by check with an IRS Form 1099 issued for payments over $600 in a calendar year. Payments made to organists and cantors are also considered compensation and should be processed through payroll if the individuals are employees of the parish. If the individuals are independent contractors, payment should be made by check with an IRS Form 1099 issued for payments over $600 in a calendar year. Payments made directly to the priest or to liturgical ministers for services would be considered compensation for these individuals and taxable by law. However, since the payments are not paid to the parish and do not flow through the parish financial statements, the parish would bear no responsibility for reporting the income on either a Form W-2 or 1099.

30 Section Page 1 of 1 1 of 1 Date 11/01/12 11/01/ Seminarians and Transitional Deacons Seminarians receive a monthly stipend of $300 to preclude the need for a job. The Archbishop wants each seminarian to devote his time exclusively to preparation for the priesthood. Typically a seminarian becomes a transitional deacon in the month of June prior to his year of ordination. When this happens, the last payment of $150, representing a half-month stipend, occurs on June 15 assuming a semimonthly payroll. During the subsequent five pay periods from June 30 through August 31, a transitional deacon receives the same pay as a newly ordained priest. For the following eight months from September through April, a transitional deacon receives a monthly stipend of $500.

31 Section 14.8 New Page 1 of 2 New Date 12/6/17 11/01/ Visiting Priests Compensation TO: FROM: COPY: Priests and Deacons of the Archdiocese of St. Louis Administrators of High Schools Archbishop Robert J. Carlson Dr. Robert Oliveri, Associate Superintendent for Secondary Schools Marilisa Heiderscheid, Controller SUBJECT: Remuneration for Visiting Priests DATE: November 13, 2017 I would like to thank you for the care with which you exercise your ministry. Recently, after hearing from the Archdiocesan Presbyteral Council and the Deans of the Archdiocese of St. Louis, I would like to inform you that the following updated guidelines have been established concerning the proper remuneration for visiting priests. Canon of the Code of Canon Law states: When clerics dedicate themselves to the ecclesiastical ministry, they deserve a remuneration which is consistent with their condition in accord with the nature of their responsibilities and with the conditions of time and place; this remuneration should enable them to provide for the needs of their own life and for the equitable payment of those whose services they need. The recommendations also indicate that travel expenses, when appropriate, should be added to these amounts at the current rate established by the Internal Revenue Service. Consideration for travel reimbursement should be given when a visiting priest travels a significant distance to provide assistance. Mass offerings should also be given directly to the officiating priest. The following amounts are to be used as guidelines when remuneration is offered for visiting priests: Sunday Mass $60 Weekday Mass $40 Confessions $25 Thank you for your service to the People of God entrusted to your care. Be assured of my prayers for you and those you serve.

32 Section 14.8 New Page 2 of 2 New Date 12/6/17 11/01/ Visiting Priests Compensation ARCHDIOCESE OF ST. LOUIS Visiting Priest Remuneration Sheet PRIEST: MONTH: CALCULATION: # Weekday Masses ( ) x $40.00 = $ # Weekend Masses ( ) x $60.00 = $ # Confession Days (Weekday & Weekend) ( ) x $25.00 = $ Reimburse Mileage * # of miles ( ) x $.535 $ # Mass Offering(s) # of Masses ( ) x $5.00 $ TOTAL: $ Thank you for your pastoral assistance! *$.535/mile is the 2017 IRS rate for mileage reimbursement. Mileage reimbursement should be adjusted to the current rate established by the IRS annually.